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A synopsis of an interview with Jim Rickards, New York Times bestselling author of The New Case for Gold, The Death of Money, Currency Wars and the soon-to-be-released The Road to Ruin, by Greg Hunter of USA Watchdog.

Jim is the editor of Strategic Intelligence, Chief Global Strategist for West Shore Funds, former general counsel for Long Term Capital Management, and a consultant to the U.S. Intelligence community and U.S. Department of Defense.

by: Elaine Diane Taylor

Topics:

US Election
Complexity Theory
Central Banks
The Average Person
Where’s the Inflation?
SDRs
The Road to Ruin

Jim is a market analyst and encourages people to vote, but doesn’t make any suggestions for who they should vote for.

He did interviews in Australia last week before the FBI announced they were re-opening the investigation into Hillary Clinton’s emails, and said he believed Donald Trump would win the election — that it would be close but that Trump would win.

Here’s the significance for the market:

Right now the markets are fully priced for a Hillary Clinton win.

Odds makers are giving her an 80% probability of winning. The markets, the pundits and the polls are all citing a Clinton win at the moment. The polls are getting tigher now, but they are putting forward a Clinton win.

Polls, pundits, markets and bookmakers are all on one side of the vote — for Clinton.

This is an asymetric trading opportunity which is great for investors.

If the markets are priced for Hillary and she wins then nothing happens because they already expect her to win.

But if Trump wins then the markets are going to sink like a stone and drop 10%.

This looks exactly like it did with Brexit.

Three days before Brexit Jim said to short Sterling and buy gold.

The market was fully priced for “Remain”. So if you shorted Sterling and bought gold and ‘Remain’ won then you wouldn’t have lost anything because nothing would have changed much.

But when ‘Leave’ won the trade reversed and Sterling dropped like a stone from $1.50 US to $1.30 in about two hours, and gold went up about $100 US/ounce and then backed off to being up about $50 up by the end of the trading day.

The polls, pundits, elite opinions and bookmakers were all favouring ‘Remain’ and yet ‘Leave’ won.

Today, it’s the same thing.

In the event of a Trump victory, which Jim expects, the market that’s currently priced for ‘Hillary” has to reprice for ‘Trump’. The S & P could go down 200 points, the Dow Jones could go down 1,000 points and gold could go up $100 US per ounce.

That’s what Jim’s expecting.

It has nothing to do with who you like or who you’re voting for, this is what the market will do if Trump wins.

COMPLEXITY THEORY

Complexity Theory is the notion that something can start out slowly, gather momentum, and then come completely crashing down.

The theory isn’t usually used for finance. It was invented in the 1960s by the scientist Edward Lorenz (Lorenz pioneered chaos theory and coined “butterfly effect”).

Jim is one of the first to use it to analyze capital markets.

It’s been used to talked about seismic events, forest fires, and human nature like traffic jams for example.

It works with the metaphor of an avalanche. You watch the snow fall. It builds up and builds up, and any expert can look at it and say it’s clearly unstable. Yet it’s just one snowflake that starts the avalanche.

When one snowflake lands the whole snowpack all falls down at once.

You never know which snowflake is the one that sets it off, but it’s there.

The financial system is like that.

CURRENCY WARS & THE DEATH OF MONEY

The books Currency Wars and The Death of Money were warnings.

They were basically preparing you for the collapse.

The new book The Road to Ruin takes you there. It puts you in the middle of the collapse. It tells you what’s going to happen and what it’s going to feel like and look like.

It starts with the tempo of past sequential collapses:

1998

Long Term Capital Management (LTCM)/Russia Crisis

Jim was the lawyer for LTCM and negotiated that bailout. He was in the room with the Federal Reserve, the Treasury and the big banks. They were hours away from closing every stock and bond market in the world.

That’s how bad it would have been. Alan Greenspan testified to that. But the money changed hands and the collapse didn’t happen.

2008

Lehman/AIG Crisis

We were days, if not hours, away from the sequential collapse of every bank in the world. Bear Stearns failed in March 2008, then Fanny Mae and Freddy Mac in June and July 2008, then Lehman Brothers in September 2008. Morgan Stanley would have been next, then Goldman Sachs, then Citi Bank, then Bank of America, and J.P. Morgan would have probably been the last man standing.

This didn’t happen because the Federal Reserve came in and truncated the process.

This is the difference between a natural system and a man-made system like capital markets. When an earthquake starts you can’ stop it. It just plays itself out. When a financial panic starts it can be stopped by policy intervention.

Imagine if you could stop an earthquake when it starts. All that energy that’s built up wouldn’t be released. It would still be there waiting to be unleashed in the next one.

That’s what happens when you have policy intervention to truncate a financial panic.

You don’t really solve any problems. You just store up the energy.

Look at this tempo. In 1998 Wall Street bailed out a hedge fund. In 2008 a central bank bailed out Wall Street.

In 2018, if not sooner, who is going to bail out central banks?

Each crisis gets bigger than the one before and each bailout gets bigger than the one before.

CENTRAL BANKS

The problem with the central banks, using the US Federal Reserve as an example, though all of them are in the same situation, is between 2008 and today the Fed took their balance sheet from $800 billion to $4 trillion.

They didn’t bring it back down again after the crisis and they didn’t bring interest rates back up from zero to 2 – 3%.

So they have nowhere to go when the next crisis hits. They’ll destroy confidence in the value of the US dollar. They’re not going to be able to re-liquify the world next time.

Where will the liquidity come from next time?

It will come from the International Monetary Fund aka the IMF (a branch of the United Nations).

The Fed prints US dollars, the European Central Bank prints euros, and the IMF prints something called Special Drawing Rights aka SDRs (it’s like a kind of world money).

They’re going to print these SDRs by the 10s of trillions.

You can see it coming.

And we’ll get the inflation that all the central banks having been trying to get for eight years.

All the world central banks have a goal of 2% inflation and none have come close.

The SDR is going to bring the inflation.

But it won’t happen overnight. It’ll take them eight months to a year, and in the meantime they’ll lock down the system to keep it from collapsing.

In 1998 everyone wanted their money back out of the system and they printed the money. In 2008 everyone wanted their money back out of the system and they printed the money.

In 2018, or sooner, everyone is going to want their money back and they’re not going to print it. They’re going to tell you that you can’t have it.

They’re going to lock down the system. They’ll close the banks. Money market funds are going to suspend redemptions. Stock exchanges are going to be closed.

They’ll say it’s temporary, just like Richard Nixon said the gold window was closed temporarily in 1971, and it’s still closed.

They’ll close the system and flood it with SDRs.

THE AVERAGE PERSON

You might get deflation first but Jim doesn’t expect that because the central banks are trying so hard to get inflation.

What’s happening is that the natural state of the world is deflationary because to demographics, debt deleveraging and new technology.

But central banks don’t want deflation because it destroys the tax base.

They tax you based on you making more money. If prices were lower you wouldn’t need to make more money to have a higher standard of living. You could make the same money and be better off with the lower prices.

Plus deflation makes their debt worth more and harder to pay off, so they don’t want deflation. They want inflation.

The natural deflation and policy inflaton are pushing against each other.

It’s an unstable equalibrium and it’s going to snap one way or the other.

Jim doesn’t expect deflation, but if we get deflation then the central banks will respond with more money printing: more QE, negative interest rates, forward guidance, helicopter money.

They’ll use the whole bag of central bank tricks until they get inflation.

WHERE’S THE INFLATION?

With all the money printing that’s been done since the 2008 Crash where’s the inflation?

It hasn’t shown up in consumers goods over all, but it has shown up in asset prices like stocks, bonds and real estate where we have bubbles.

It’s cartoon magic — how do you get bubbles in stocks and bonds at the same time?

The danger is that if they raise interest rates then it’ll burst those bubbles and destroy confidence for a generation — far worse than 2008.

So they have to get inflation.

With all the printing people might not spend it and create inflation, they might save it or pay off debt. But governments don’t usually pay down debt or save — they spend.

SDRs

The SDR is used for trade between countries. The SDRs aren’t given to people. They’re given to countries who will spend it.

Plus, they can also give SDRs to multi-lateral institutions like the World Bank (the World Bank is another branch of the United Nations).

WHAT TO DO

Get yourself and your family some assets that aren’t subject to the inflation that’s coming.

Get some assets that aren’t digital and can’t disappear in a keystroke.

Things like gold, silver, fine art, land, natural resources like water, or even private equity where it’s private equity and the contract is between an investor and entrepreneur without relying on the stock market.

Even putting just 10% of your investible assets in these things like gold and silver will protect you.

Don’t sell everything and buy gold.

Just 10% in gold is good insurance. If everything else falls apart then the value of the gold will go up and insulate you from the losses of other investments.

You may not be able to save the world but you can prepare and save yourself.

When it happens it will happen very quickly.

Lots of people believe they’ll just sell their stocks and buy gold the day before it collapses but they might not have the chance.

Jim returned recently from Switzerland where refiners tell him they have a long list of buyers and have trouble getting the gold to refine.

Right now you can get gold, but in a panic if it’s going up $100/ounce a day then you might not be able to.

BANK HOLIDAYS

This isn’t going to just happen like it did in Cyprus and in Greece.

If you go back to the G20 Summit in Australia in 2014, you see in the final communique that the elites put in a bail-in plan.

It’s like Ice-9 in the novel Cat’s Cradle. This is where one molecule of water would freeze and every molecule of water it comes in contract with freezes, and so on and so on, until all the lakes, rivers and oceans are frozen and it’s doomsday for life on the planet. Ice-9 starts slowly and grows exponentially.

That’s Jim’s metaphor for the financial crisis.

There’s a new law that says the money market funds can now suspend redemptions.

People think they can just call their broker and sell some money market funds and have the money wired to their bank.

But now in a crisis they’re not going to be able to.

They’ll just suspend redemptions to get the SDRs out there.

They printed SDRs in the last crisis, where the worst part was in fall 2008, but it took until fall 2009 for the IMF to get them out there. Maybe that was a test and next time they’ll do it in 4 – 6 months. However long it takes them, that’s how long the system will be locked down while they create the liquidity to re-open the markets.

It could possibly lead to money riots where people burn down banks but the elites are ready for that now too.

YUAN IN THE SDR

October 1, 2016 was a big deal because the Chinese yuan was added to the basket of world currencies used to the value the SDR.

While the yuan doesn’t meet the criteria to be a world reserve currency, it was still added to the basket for political reasons.

The IMF did it because they see the scenario that Jim’s been describing.

The elite have been warning each other that it’s coming and they’ve been taking precautionary steps to get ready.

When they need to flood the world with SDRs in order to avoid a complete meltdown they’ll have to print maybe $5 trillion SDRs.

China is the second largest economy in the world so the IMF is going to need China to approve using the SDR to make sure it works in trying to re-liquify the world.

China is 15% of global GDP.

So China is getting an increasing voice in the IMF and China wants to be in the IMF club if they’re going to approve using SDRs for gobal trade.

So the IMF put China in the club, and when the IMF needs to use the SDR then China will be onboard because they’re a part of this new world money.

SDRs

There are now two kinds of SDRs — the O SDR (Official SDR for nations) and the M SDR (Market SDR for a private bond market denominated in SDRs).

The M SDR was created in July 2016, and in August 2016 the World Bank issued $200 billion SDRs. Not $200 billion in US dollars or euros… in SDRs.

It was unwritten by Chinese banks and mostly issued to investors in China.

So it’s not for individuals, but the institutions can buy them and you can own SDR bonds through someone like Goldman Sachs.

They’re not issued by the IMF but they’re denominated in SDRs. (So if you think the SDR is going up in value then it’s what you’d want to denominate bonds in).

THE ROAD TO RUIN

So the elite are creating a private SDR market and getting ready to issue them to governments.

They want China onboard.

It might be the 10 – 15 Year Plan for the global elites but if the financial crisis comes then they’ll speed it up. But they can’t act immediately, so if the crisis comes before they’re ready then the system will be locked down until they’re ready.

The Road to Ruin has 150 footnotes citing the sources the support Jim’s claims.

New technology always brings a new power balance. It’s the hope of those currently with the power that they can transition into a new reality while still holding that power.

Electricity brought the ability of all processes to be everywhere at once — a field of light instead of a straight line like a highway or production line.

Communication became a field instead of a line. Our thoughts work the same way. A society swings from being rational to being intuitive. From reasoning in a straight line to insight.

The internet brought the ability for decentralized communication, and so information the elites thought was private is now being broadcast through the internet like a field. All at once. Everyone is communicating with each other without a hub that the information must be processed and curated through.

The elites used to pass information, influence, from one-to-many using mass media. Radio. Television. They called it a hypodermic needle approach. Now that has changed.

Those without power always want to use the new tech to gain control of their own lives. Absolute power corrupts, always, and the current elite have used the old tech as far as it could possibly reach. It’s a massive change coming. The masses don’t trust the elite. New tech is here. It’s AI and new energy tech along with a new digital reality. Driverless cars and digital finance will come in and change our world in ways that could not be fathomed when organizations like the United Nations were formed.

Governments will change. Nations will change. The way we think will change. The re-balancing of power will happen as it transitions to the new and the old ends. Hopefully without violence. It looks less likely that it will be without some chaos. So we live in interesting times and can look for ourselves and make some decisions to live through the change.

Meanwhile space is being explored as we expand and reach for more growth physically. Tech and corporate elites know more than they are saying. Just like information of the New World was kept quiet when the Americas were “discovered”. They must control information as new discoveries are made while they’re setting up quietly to take advange of the new resources. We’re not just talking about the end of a cycle of economic growth, or a move into global depression or inflaton.

The Greek bank holiday and long lines to get a few euros for the day. Debt deals behind closed doors. The media telling us what opinions to have. China building islands in the South China Sea and claiming all the international waves. More dealing to come. More standing in line for those who owe. Who owes? There’s a long line of nations in debt and this is far from done.

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Preparing for the Fall live boutique album available on iTunes — featuring Wag the Dog, Black Swan Dive, American Pie and Gods of the Copybook Headings.

The copybooks of the early 1900s gave us all the wisdom we need. The sayings that were copied are the truths, the gods, of our world. All the empires who followed the gods of the marketplace instead have fallen, and there’s terror and slaughter when the gods of the copybook headings return. The lyrics are by Rudyard Kipling. One of my gurus.

See the bankers wave their Wall Street wands and conjure piles of paper green. Naked short selling is like betting that your neighbour’s house will burn down. But in this scenario it happens to burn down. If the bankers win then we lose the whole world as we know it. I wrote this in 2009, with a lyric “A little grease (Greece) is floating out to sea, and little pigs (Portugal, Italy, Greece and Spain) are bobbing up and down, they’ll send a storm and we’ll see, when the tide goes out who’s naked on the beach“, and it’s coming on now. The world is changing as we know it.

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Nothing on this site is intended as individual investment advice. We’re all watching which way the wind is blowing.